TSX Index Revisions and Corporate Performance

The information content and the impact of the S&P/TSX Composite Index revision on firm performance is studied. The results show that added companies experience significant increases in their expected earnings following the addition. For deletion, after adjusting for matched firms, the removed firms’ expected earnings demonstrate significant decreases, which indicates that investors may draw positive (negative) information from the addition to (deletion from) the TSX Index, similar to the pattern of S&P 500 Index revision. For realized earnings, removed companies do not demonstrate significant decrease, and added companies experience significant increase after May 2002, which patterns are different from that of S&P 500 Index. Possible reasons for such patterns are also discussed.